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Appliance Outlook

A Durable Market for Durable Goods

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MCN Editor Dan Markham The market for most major appliances has defied expectations for a major retrenchment following the pandemic spike.

That the appliance market has fallen from its present- and post-pandemic highs is not a shock. Perhaps the only surprise is how short the trip down has been. 

When COVID-19’s onset sent the majority of Americans scurrying to hole up in their homes – first by government dictate then by cautious choice – many of them found themselves long on cash and short on places to spend it. Consequently, the appliance market flourished. 

From late 2020 through all of 2021, sales of all major appliances grew by more than 10 percent to record levels. The biggest product categories – refrigerators, ranges, ovens, dishwashers, washers, dryers and dishwashers – experienced similar gains. 

But as the pandemic’s effects waned in 2022, followed by the economy cooling down and interest rates shooting up in 2023, it was a safe bet the appliance market would suffer a significant tumble. That didn’t happen. 

Yes, there was a drop off in 2022 from the record highs, but it was less than double digits. And rather than continue its fall in 2023, the past year represented a modest uptick to 52.5 million units sold in the six major product categories. 

“It backed off some, but it could have turned out to be a much greater correction,” says Evan Barrington, vice president of The Stevenson Company, Louisville, Ky. 

Barrington was among many analysts projecting a decline in 2023, in his case a drop of 3 to 4 percent. But the market has been surprisingly resilient. 

“The consumers have continued to spend. And housing held up better than expected, especially the new construction side, given everything that happened to interest rates,” he says.

Typically, the appliance market rides the coattails of the housing market. When activity spikes in the housing sector, gains will soon follow for major appliances. And, of course, the same is true to the downside.
 
The past year was a decent one for new construction, though sales of existing homes plummeted to their lowest levels in nearly three decades, Whirlpool Chairman and CEO Mark Bitzer noted in his company’s fourth-quarter conference call. “If you’re locked into a 3 percent mortgage, it wasn’t a good idea to exchange that for a 7 percent,” explains Barrington, who has been tracking the appliance market for decades.

One holdover from the COVID days is the expansion of appliance use beyond the usual locations in the kitchen or laundry room. “Consumers are personalizing their spaces with the addition of appliances where they were previously unexpected,” says Jeff Sweet, senior product manager at Sub-Zero Group Inc., citing bedrooms, bathrooms and home gyms where refrigerators, coffee systems or wine storage units may be placed.

While interest rates remain high and thus could continue to dampen existing sales, there is continued hope for new home starts. The U.S. housing market has remained undersupplied for several years. Furthermore, the expectation is the Federal Reserve will begin to reverse course on rate hikes, possibly as early as the second quarter. 

The National Association of Home Builder says builder confidence started to rebound at the tail end of last year, and continues to be on the upswing. 

“Mortgage rates have decreased by more than 110 basis points since late October per Freddie Mac, lifting the future sales expectation component in the HMI into positive territory for the first time since August,” said NAHB Chief Economist Robert Dietz. 

While there are supply issues on the housing front, the same is no longer true for the appliance market and its suppliers. As with automotive and some other sectors, the industry did have some difficulty sourcing components in 2021 and 2022, but those supply chain issues are largely in the past. 

“A couple of years ago, it was a major challenge. Things are back to normal, it doesn’t occasionally mean there won’t be a problem with a part or something, but that happened pre-COVID too. The major difficulties we were running into during COVID they’re pretty well behind us,” Barrington said. 

The supply availability typically extends to the metals, though with the occasional hiccup. 

“Availability is not an issue at all. The question is, where does this market settle out over the next 60 days is what we’re looking at,” says Joe Ross Merritt, CCO for Jemison Metals, Birmingham, Ala.

Chris Sekella, COO, of Coilplus, Rosemont, Ill., has seen some mill delays, perhaps due to growing commitments to their automotive customers. “We’re seeing two- to three-month delivery issues. U.S. Steel has the Mon Valley issue, which supplies a lot of the substrate downstream. And Calvert bit off a lot of automotive.”

Sekella says one unique feature he’s observed with the appliance market is the difficulty the market has in terms of forecasting demand. 

“We’re trying to work closer with them to use some historical analytics to anticipate things. From a forecast accuracy standpoint, the demand and build rates and schedules seem to fluctuate a lot more in this industry than in others,” he says. 

The metal supply situation was given a bit of a reprieve with the proposed sale of U.S. Steel to Nippon Steel, which is expected to go through despite some political opposition. Most observers believe the switch won’t disrupt the appliance market, which wouldn’t necessarily have been true if the steelmaker was acquired by one of its other pursuers. 

“Overall, it’s kind of a net neutral for domestic supply,” says Chris Billman, market research manager for Majestic Steel, Cleveland. “It’s a new voice in the room, but I don’t know if that’s good or bad. It’s too soon to tell.”

Of course, steel is just one of the metals used by the appliance makers. 

Barrington points out that stainless remains popular with consumers, which has been the case for more than a decade. Jemison’s Merritt wonders if the pandemic, and the challenges that were associated with it, might have propped up the status quo. 

“There just hasn’t been a lot of substantial engineering  across much of our customer base. Most people were more concerned about keep their supply lines full,” he says. “We would hear, ‘We want to go from stainless to prepaint.’ A lot of that stopped. We probably prefer it to stay that way.”

Barrington noticed something similar and believes the supply challenges contributed to that, which should no longer be the case. “They want to build the products most under demand. Earlier, they would build with whatever parts they had available.”

Though perhaps not as subject to the whims of the federal government as the automotive market, the appliance sector must regularly deal with regulatory issues. Those have ramped up under the Biden administration, particularly relating to energy efficiency. Barrington notes, however, that modern appliances are already incredibly efficient. 

And the threats to the domestic industry don’t just come from D.C. Sekella sees greater penetration from imported products, which can take advantage of the fact that tariffs exist on raw materials but not on finished goods. He says that’s led the stateside appliance makers to be seeking out alternative materials or thinner materials to take cost out of the equation and remain competitive. 

Looking ahead to the remaining 10 months of 2024, observers are forecasting more of the same, with both tailwinds and headwinds applying to the market. 

To the plus side, “people widely assume interest rates are done increasing, if not going to pull back a little next year, which is usually good for large purchases such as housing, auto and certain durable goods,” says Billman. 

Barrington is forecasting a flat market in 2024. “Overall, there have been an awful lot of appliances purchased over the last three years. Economic growth is going to be more modest in 2024 than it was in 2023.”

Industry leader Whirlpool concurs with his assessment. “We expect to see similar demand trends in the U.S. that we saw in the second half of 2023, with resilient replacement demand creating a solid footing for industry volumes and consumer discretionary demand continuing to be impacted by elevated mortgage rates driving down existing home sales. Overall, we expect North America to be flat to slightly positive,” said Jim Peters, CFO. 

And, all things considered, flat isn’t bad. 

“We always like to have growth, but a flat market means the correction we’re seeing relative to the peak is quite modest. Things could be a lot worse,” Barrington says.

[Caption:]
Stainless continues to be favored by consumers. (Photo courtesy Sub-Zero)